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YOUR HOME; The Gantlet Of Mortgage Approval

FOR those seeking a mortgage to buy a house or apartment, it quickly becomes apparent that getting the loan does not end with filing the application. Even borrowers who have been preapproved for a mortgage soon discover that the approval is often subject to conditions, contingencies and verifications before the lender writes a check for the mortgage.

''Every mortgage is a calculated business decision,'' said Oded Ben-Ami, a senior loan officer for Sterling National Mortgage, a mortgage banker in Great Neck, N.Y. ''And the first question that lenders usually ask is whether the loan can be sold on the secondary market.'' Mr. Ben-Ami was referring to the practice whereby mortgage lenders generally sell the mortgages they make to large institutional secondary lenders so as to have a constant supply of cash on hand to make new loans.

''If we know we can sell the loan to investors, we know that we're probably making a good loan,'' Mr. Ben-Ami said. ''But if we're even a little bit sloppy, and we make loans that we can't sell, we could end up being stuck with a loan that's just eating up our resources.''

As a result, Mr. Ben-Ami said, most mortgage lenders require verification of the information a prospective borrower provides on an application. And in most cases, he said, that verification process is intended to meet the minimum requirements of institutional investors like the Federal National Mortgage Association, or Fannie Mae, a Congressionally chartered, shareholder-owned corporation that is the nation's largest source of residential mortgage funds.

For example, Mr. Ben-Ami said, most lenders make the borrower submit one month of pay stubs, two years of tax returns, and two or three months of bank statements to support the application information. And that's just the beginning. ''Every document you submit has the potential for raising new questions,'' Mr. Ben-Ami said. ''And every new question has the potential for necessitating more documents.''

For example, Mr. Ben-Ami said, an applicant's pay stub tells a lender more than just how much money the would-be borrower earns in a given week or year. It may show that the borrower's total annual income has been increased by one or more bonuses that the borrower may not get in the future.

''A good loan officer will notice that and will want to know how likely it is that the bonuses will continue,'' Mr. Ben-Ami said.

The pay stubs may also show things that the borrower may have neglected to mention on the mortgage application. Deductions for loans against a pension or retirement account -- debts that may not show up on a credit report -- will be reflected on the pay stubs. In such a case, Mr. Ben-Ami said, the lender might ask the borrower for more information about the loan.

But why require a whole month's worth of stubs? ''Because sometimes you need to see two or three or four consecutive pay stubs to document the borrower's true rate of pay,'' Mr. Ben-Ami said, explaining that since employers pay salaries on different timetables -- weekly, biweekly, twice a month and monthly -- lenders need up to one month's worth of stubs to calculate the true annual salary.

Tax returns, of course, are also important. ''There are a zillion things we can deduce from a tax return,'' Mr. Ben-Ami said. For example, he said, an individual who has a significant amount of salaried income may have other business involvements that offset that income. Such involvements would likely be shown by the tax return.

''A person making $100,000 a year as a W2 employee may be involved in five other businesses that are draining him of even more than that every year,'' Mr. Ben-Ami said, adding that tax returns are an absolute must for borrowers who derive all or part of their income from self-employment.

Joseph Fierro, chief executive of the New York Mortgage Company in Manhattan, said that copies of recent bank statements were also important to a lender.

''As a lender, I need to know that you have enough money in the bank to cover three things: the down payment, closing costs and post-closing liquidity,'' Mr. Fierro said, adding that lenders like to know that the borrower has at least two or three months' worth of housing expenses on hand after the closing.

And while a borrower's most recent bank statement might provide the lender with the basic information he needs, the requirement for additional statements gives the lender some historical perspective.

''Mattress cash is usually unacceptable to a mortgage lender,'' Mr. Fierro said. Large infusions of cash into a borrower's bank account a month or two before the closing would raise an underwriter's eyebrows, he said. ''If you've borrowed your down payment from the neighbor next door, you're probably going to have to pay him back,'' he said. ''And we have to take that repayment schedule into account when we're determining whether you have the ability to make the required monthly payments on the mortgage.''

Neil Bader, chief executive of IPI Skyscraper Mortgage Company, a Manhattan mortgage broker, agreed. ''This is all about cash flow,'' Mr. Bader said, explaining why even people with substantial assets -- large bank balances, big 401(k) accounts and equity in other properties -- still must prove that they can make the monthly payment.

''No matter how good your credit is, no matter how much you have in the bank, if you don't have the necessary cash flow, you're not going to get a conventional mortgage,'' he said, pointing out that the recent tumult in the stock market provides ample proof that some paper assets may have a relatively short shelf life.

(All lenders interviewed for this article said that for those who would rather not disclose the source of their income, there were ''no-income-verification'' mortgages. Such loans -- which usually carry an interest rate about 1/4 percent higher than ordinary loans and usually require pristine credit and a down payment of 25 percent -- can be made without a borrower's proving to a lender where the income comes from.)

Mr. Bader, whose company also makes a large number of share loans to those who are buying co-op apartments, said that future cooperators had yet another factor to consider. ''With a co-op, the financials of the building become critically important,'' he said. In addition to the prospective buyer's having to qualify for a co-op share loan, he said, the building must qualify. ''A lender doesn't want to make a share loan in a building that is financially unstable,'' he said. ''And a building may be unstable for various reasons.''

Lenders generally want at least 50 percent of the units in a co-op to be owner-occupied. ''If 60 or 70 percent of the units in a building are still owned by the sponsor or a big investor, and he suddenly goes belly up, that's going to be a real problem for the building,'' Mr. Bader said.

Mr. Bader, Mr. Ben-Ami and Mr. Fierro said that while getting a mortgage might seem to be a daunting challenge, the underwriting process was becoming more streamlined,

In fact, with Fannie Mae's ''automated underwriting system,'' participating lenders can enter a borrower's mortgage application information into a computer and then electronically transfer that information to Fannie Mae. Using that system, mortgage approvals are usually measured in days rather than weeks and are largely based on a borrower's creditworthiness and the amount of the down payment.

''Most of the industry is heading toward the electronic underwriting model for almost all loan types,'' Mr. Fierro said. ''And with automated underwriting, a lot of the traditional documentation requirements go away.'